Relative Strength Index Calculator

# Relative Strength Index Calculator

The Relative Strength Index (RSI) is a popular technical indicator used in financial markets to analyze the momentum and strength of a financial asset, such as a stock or a currency pair. It’s a tool that helps traders and investors make decisions about buying or selling assets based on overbought or oversold conditions.

Here’s how the RSI works:

1. Calculation: The RSI is calculated using a formula that takes into account the average gain and average loss over a specified period, usually 14 periods. The formula is as follows:

RSI = 100 – (100 / (1 + RS))

• RS (Relative Strength) is the ratio of average gain to average loss over the specified period. It’s calculated as follows:

RS = (Average Gain / Average Loss)

• The average gain is the average of the positive price changes over the specified period, and the average loss is the average of the negative price changes. These are usually calculated as absolute values.

2. Interpretation:

• RSI Values: The RSI typically produces values between 0 and 100.

• Overbought: When the RSI goes above 70, it is considered overbought. This suggests that the asset may be trading at a relatively high price, and there is a potential for a price reversal or correction.

• Oversold: When the RSI falls below 30, it is considered oversold. This indicates that the asset may be trading at a relatively low price, and there is a potential for a price rebound or rally.

• Divergence: Traders also look for divergence between the RSI and the asset’s price movement. For example, if the RSI is making higher highs while the asset’s price is making lower highs, it may indicate a potential trend reversal.